Question

3 Part D ( newly added) ESP The low represent scenarios of change in typical business. >Circle which of the graphs listed wil ange first by these changes. Ten draw all the cost curves representing typical small business and show graphically how each scenario can affect the overall separately of the producers. Consider (a). (b), (). and (d) costs (a ) Sketchers Shoes: In Feb 2011, the Sketcher's shoe company ran an ad during the Super Bowl showing Kim Kardashian bidding farewell to her personal trainer and buying a pair of Shape-ups instead. In 2012 the Federal Trade Commission began investigating Sketchers for false advertisement. The company denied wrongdoing but agreed. to pay the FTC $40 millions to settle charges it tried to deceive the customers Circle one AFC AVC ATC MC ) Look at the picture showing a pair of pants that is attached at the end of the packet with the articles The information on the image shows you changes that are being implemented. As a result, wh first in the concepts below: ich is changing Circle one AFC AVC ATC MC C ) "US companies spend usually an enormous amount on worker training-about $134 billion worldwide- but they have been cutting back starting in 2008, when the financial crisis began. This will definitely reduce the opportunity or workers to acquire needed skills, especially needed in the future. (Blooomberg BusW Nov, 2009) Which curve will be affected a a result of the above and in what way? ATC/AVC or LRAC Answer graphically with a fully labeled graph then briefly explain why

Answer 1

The penalty is a fixed cost. Therefore, the first curve to change will be average fixed cost. It will then change the average total cost. However, marginal cost and average variable cost will not change. (Average variable cost might change if we include increasing in marketing, advertising due to negative publicity etc)

120 T 100 MC 80 60 + ATC AVC 40 、、 20 AFC 0 Output

In the above scenario, AFC and ATC will shift upwards whereas AVC and MC will remain the same.

US training:

ATC and AVC will reduce, therefore impacting the LRAC. Labor is a variable cost, therefore associated training is also a variable cost, as the expenditure is reduced gradually the SRAC will reduce and impact the LRAC.

120 T 100 MC ATC AVC 60 8 40 T 20 AFC Output

LRAC RAC1 SRAC SRAC RAC RAC1 SRAC